Paul Krugman on Whether Facts Matter to the Republican Leadership

When the financial crisis struck, many people — myself included — considered it a teachable moment. Above all, we expected the crisis to remind everyone why banks need to be effectively regulated.

How naïve we were. We should have realized that the modern Republican Party is utterly dedicated to the Reaganite slogan that government is always the problem, never the solution. And, therefore, we should have realized that party loyalists, confronted with facts that don’t fit the slogan, would adjust the facts.

— snip —

The bipartisan Financial Crisis Inquiry Commission was established by law to “examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The hope was that it would be a modern version of the Pecora investigation of the 1930s, which documented Wall Street abuses and helped pave the way for financial reform.

Instead, however, the commission has broken down along partisan lines, unable to agree on even the most basic points.

It’s not as if the story of the crisis is particularly obscure. First, there was a widely spread housing bubble, not just in the United States, but in Ireland, Spain, and other countries as well. This bubble was inflated by irresponsible lending, made possible both by bank deregulation and the failure to extend regulation to “shadow banks,” which weren’t covered by traditional regulation but nonetheless engaged in banking activities and created bank-type risks.

Then the bubble burst, with hugely disruptive consequences. It turned out that Wall Street had created a web of interconnection nobody understood, so that the failure of Lehman Brothers, a medium-size investment bank, could threaten to take down the whole world financial system.

It’s a straightforward story, but a story that the Republican members of the commission don’t want told. Literally.

Last week, reports Shahien Nasiripour of The Huffington Post, all four Republicans on the commission voted to exclude the following terms from the report: “deregulation,” “shadow banking,” “interconnection,” and, yes, “Wall Street.”

When Democratic members refused to go along with this insistence that the story of Hamlet be told without the prince, the Republicans went ahead and issued their own report, which did, indeed, avoid using any of the banned terms.

That report is all of nine pages long, with few facts and hardly any numbers. Beyond that, it tells a story that has been widely and repeatedly debunked — without responding at all to the debunkers.

In the world according to the G.O.P. commissioners, it’s all the fault of government do-gooders, who used various levers — especially Fannie Mae and Freddie Mac, the government-sponsored loan-guarantee agencies — to promote loans to low-income borrowers. Wall Street — I mean, the private sector — erred only to the extent that it got suckered into going along with this government-created bubble.

It’s hard to overstate how wrongheaded all of this is. For one thing, as I’ve already noted, the housing bubble was international — and Fannie and Freddie weren’t guaranteeing mortgages in Latvia. Nor were they guaranteeing loans in commercial real estate, which also experienced a huge bubble.

Beyond that, the timing shows that private players weren’t suckered into a government-created bubble. It was the other way around. During the peak years of housing inflation, Fannie and Freddie were pushed to the sidelines; they only got into dubious lending late in the game, as they tried to regain market share.

But the G.O.P. commissioners are just doing their job, which is to sustain the conservative narrative. And a narrative that absolves the banks of any wrongdoing, that places all the blame on meddling politicians, is especially important now that Republicans are about to take over the House.

It is truly amazing how the narrative has flipped. In just a few short years, it’s become not a problem of deregulation but one of big government. The conservatives now can use their deregulate and cut taxes rallying cries to help us recover from the very crisis they created.

Toronto recently had mayoral elections and unfortunately the noise-making right wing won. One might think that people who voted for that candidate were nothing but fools living in an illusionary world. The things that troubled me the most were that none of their arguments were backed up, their claims were flimsy and their ‘money saving’ policies were so myopic that they would end up doing more harm than good. But who the hell thinks of long term?

While I agree with most of what you say one
point I disagree with is your statement that the
story of the financial crisis is straightforward
and not particularly obscure. In fact I believe
this is the pivotal issue here and in many areas
including government and private enterprise.
Obfuscation and deception are rampant and have come
to be expected and even accepted in almost every
area of modern life and spin is used to disguise
secret agendas. In the midst of such intentionally
generated confusion Truthiness seems to be the only
viable alternative.
If you can’t trust the so-called facts that
are presented then gut feelings are all you have.

My point exactly. The conservative narrative is meant to elicit an emotional response that is more easily manipulated. I refer to Al Gore’s “The Assault On Reason” as exemplifying the point I’m trying to make.
See: http://www.youtube.com/watch?v=jdPcwwK5DII

Welcome, Guest, to Café Philos

Café Philos is a venture of Paul Sunstone. Paul discusses a large variety of subjects involving living, philosophy, religion, the arts and sciences, and welcomes your comments and emails. Drop by with your favorite beverage and join the conversation!